Austerity Cuts What do they mean for you and me

Whichever newspaper you read (or several, if you are a news-junkie like me), last week the big story was all about austerity cuts, Greek haircuts and numerous other types of cuts that don’t sound particularly pleasant to the uninformed masses – you and me. So I thought I would cut through the jargon to look into what it really means to the man in the broadcast street. Will the problems in Greece, Ireland, Spain and wherever else help or hinder our television economy over here, in dear Old Blighty?
A rose-tinted view
Cast your mind back to a couple of months ago when the EU happily reported that only two banks in the whole of Europe failed their very stringent test on liquidity. That, without being too technical or reverting to bank-speak, means everything in the banking world was good and strong.
Since that upbeat announcement, the French banks have had to go cap in hand to the French government for potential recapitalisation. Then the haircut from Greece came and now all banks are to be asked to write-off up to 50 per cent of all their Greek sovereign debt. In return, Greece is not going to default on its debt – effectively sounding the death knell for the Euro.
The governments of countries in the Eurozone – and the UK (we are obliged to fund other EEC countries, despite still having our own currency) – will set up a fund that will help capitalise the banks that have had to write off this debt – effectively saving the world. That is, if the Greeks decide to vote, in their referendum, in favour of this solution – effectively saving their Euro currency.
When Europe sneezes …
“So what?” we hear you say. “How does all this affect us in the UK and how can we carry on in our broadcast world?” The answer is: not a lot today or tomorrow but the effect will come and I will try to explain how and what you can do to mitigate the risks.
First, television is a world that is driven on the back of advertising spend. I keep coming back to the bellwether of our industry – ITV plc – but it is almost a dead cert that when ITV is doing well, broadcast seems to follow suit. So, if our German, Italian and French friends run into a spot of bother over in mainland Europe, how will that effect our industry?
Well, if the European economy goes pear-shaped, we will dip straight back into recession. In a recession people stop spending money on advertising, and cash flow is squeezed out of our industry.
Look, for instance, at the Champions League’s main TV sponsors: Ford, Heineken, Unicredit, Sony, Sony Erikson and MasterCard. All these businesses are directly susceptible to a Eurozone recession as they are all consumer-based industries.
So, if Italians have no money to spend they will keep their existing car, they will not buy a new PlayStation, they won’t upgrade their mobile phones and they might well default on their bank loans – Unicredit being an Italian bank – and, dare I contemplate it, cut down on their lager intake.
This, in simple economic terms, could mean that next year the sponsors may not renew or they might try to renegotiate their deals at a lower amount. Recessions, rest assured, take money out of the advertising game, and as soon as that happens, money will drift out of the UK TV economy. The latest figures issued say that if the Eurozone dips into recession then it may stay stagnated for up to four years. That could mean the alarm bell sounds for many in our industry.
But, as always, we have some positive advice for you, to help your business stay afloat.
Things to do in a recession
And, typically for us, these aren’t theoretical bullet points worked out on paper but sound business sense that we know, from our own and our clients’ experience, works:
watch your cash flow: chase your debtors and slow down your creditor payments (yes, it’s a double edged sword as you wouldn’t want your debtors to do the same to you – but you do need to make sure it’s you who acts first);
spread your risk amongst your customers: make sure you don’t have one large debtor which, if it fails, might wipe out your business;
talk to your bank: explain your situation and arrange overdrafts or loans, way before you think you’ll need them;
plan your income through hard times: look for long-term sources of steady income to keep you going when the flow of projects reduces;
take on freelancers, not full timers: it could keep you in business – and freelancers generally work extra hard to keep a client;
reduce peripheral costs: look at your marketing, advertising and entertaining budgets and see if they can be curtailed or, at least, reduced without jeopardising your business long-term;
keep professional costs under control: consider what is essential, what could be done in-house and whether you can reduce costs. For instance, your accountancy costs may be higher than they need to be – we recently saved a client £7,000 a year by moving their accountancy service to a more economic firm.
These are just a few pointers to keep you thinking about ways to succeed despite the recession, and if they seem surprisingly simple it is because there is, indeed, nothing new under the sun, even if the sun isn’t shining quite so brightly over the Eurozone.
And finally, if you would like specific advice about what to do for your business in tough economic times, do email me on peter.savage@azule.co.uk and/or write to the TV Bay editor. For more information about us, or to read other articles in this series, look at our website: www.azule.co.uk